FSC pushes scaled advice model minus SOA requirement

The Financial Services Council (FSC) has canvassed greater use of scalable advice not constrained by the requirement for a Statement of Advice (SOA).

In a column written by FSC policy manager, Zach Castles, to be published in Money Management, the FSC has made clear its proposal for a two-year trial of the scalable advice arrangement which would only require a less costly Record of Advice (ROA).

Castles is canvassing the use of scaled advice as the FSC’s way of helping overcome growing adviser departures from the industry.

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“While no sector in the Australian economy has been spared as the downturn bites, the truth for the financial advice industry is that adviser departures were in train well before COVID-19,” he said. “The industry continues to buckle under spiralling compliance costs and rules for which the true impact has not really been quantified except for one stark projection: just 16,000 financial advisers could be left in the industry by Christmas next year.

“The FSC wants to make first time engagements less costly. A key proposal in the FSC’s Accelerating Australia’s Economic Recovery report, is a two-year trial to make it easier to access scalable advice and less costly for businesses to provide it. Scalable advice would be documented through a Record of Advice (ROA) allowing clients to seek advice on a specific subject.

“Despite an expectation to be concise and clear, SOAs are unwieldy and often almost incomprehensible because of the legal detail. They require a substantial amount of research and in-depth fact-finds about the client as a legal requirement, the level of which offers the most value for developing strategies that service complex client needs and objectives.

“This is again at considerable cost to the consumer for single-issue and in many instances first-time financial advice. Further reams of paperwork are also provided to clients in the form of the Financial Services Guide and contractual agreements. By contrast, an ROA is shorter and less formal, less costly to produce and usually provided to existing clients to confirm changes to the implementation of advice recommendations.

“Such a proposal would still see consumers protected with more flexible access to world-class financial products and advice. It is a pathway to reduce the unnecessary cost, duplication and paperwork now blockading the advice system and pricing consumes out of meeting advice needs,” Castles wrote.

He said that critical to the FSC’s proposal was that it be monitored and the industry work with regulators and Government to demonstrate where it added value so that it could be refined in the interests of consumers over time.

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Finally it seems we're getting some of the industry assoications that acctually have some sway, on our side. It does make you wonder why the AFA and FPA are not the one's coming up with these ideas.

I had a client come see me on the 25th June to look at his insurance renewals. He asked me about making a lump sum cont to super, wanted to know all the ins and outs of the super caps and whether it was a good idea for as he had a capital gain that he wanted to offset. I'd only provided insurance advice to him in the past so I couldn't advise him. There was no way I was getting an SOA done in time for him to be able to get the contribution into his fund. All I was able to do is give him information (free of charge) and let him decide himself.

That's not how it should be. A professional can quickly assess whether a strategy is appropriate and make a recommendation. That's what Lawyers and Accountants do every day, no rubbish SOA to document 5 alternate strategies that were considered.

An ROA would be suitable for about 80% of advice that we give I would say but any replacement product advice would need to be fully documented still. Retirement planning would still need an SOA.

Maybe we'll finally see some positive change in the industry.

Agreed. I hold my own licence because I want to be able to decide what is appropriate for my clients, both first time and long term. My SOA's comply with the law (as opposed to lawyers), but are only about 10 pages long. My advice is always about the specific question a client presents with. My SOA's outline the limitations of any advice I give. And they are totally focussed on the client's requirements at a point in time. And in the above example, there's also tax advice in the mix. Clients want to be able to ask for specific advice and receive an answer that covers all the specific bases. They don't want a lengthy and expensive rigmarole about what alternatives they might have for utilising the lump sum. Basically, regulators have forgotten the principle of defining the issue/problem/client need, and addressing that.

Meanwhile the clients are happily buying insurance direct & doing rollovers direct, with next to no documentation at all.

At least with your simple and concise 10 page SOA your clients actually understand the advice being given. 8/10 clients don’t have the time or patience to read the 40 page SOAs most licensees make you create to comply with their interpretation of compliance.

Good on you from breaking away from your licensee best of luck mate

that's skinny, only 40. mine are 120 to 140 pages

Absolutely not. You've all sat back and watched this mess get created, you don't get a special carve out because you've killed the industry, careers, businesses and advisers.

no way. I don't give rats now that I have adjusted to the giving SoA's and I can do that with great efficiency.

what I want now is a mandatory SoA on each review annually, and annual opt-in and FDS and I'd like to see the life insurance and investment management industries collapse when there aren't enough advisers.

then when there are only 10,000 advisers left and no entrants into the industry I want a full media blitz from the FPA and AFA with their some $20m in cash naming and blaming and shaming and publicly humiliating all and sundry for making the industry the shitshow it is

until then no way no reduction. i want more compliance. give me more.

The whole system is broken. My licensee is now forcing us to issue new SOA's every 3 years, they say ROAs are not good enough, even for a simple rebalance or hold recommendation. We need urgent intervention to break the cycle of this never ending compliance nightmare

That’s because licensees want more than what is required by ASIC in an SOA, they do it to cover their own ass but don’t realise if you comply with ASICS requirements you are covered I got so sick of my licensee saying well these are our standards and they are higher than ASICs. What’s the point of giving clients a 40page SOA when it can be done in 10pages comply with the law and be simple and concise so clients can understand it which is also one of ASICS requirements for SOAs.

Ditch your licensees and get your own license like I did so you don’t have fools in compliance telling you their opinion of what needs to be in an SOA

fools in compliance is an apt description.

I get compliance people give us issues but I also understand that some advisers was sue's or they compliant made it to of the the regulators and they nailed them thus the licences then add something else to disclose to cover this off to stop the lawyers from making claims against them and also you the adviser. Danielle press has not made one clear determination on anything just look at their own soa example which is more than 10 pages yet they say the license are going over board and this could be shorten i don't buy that.

regulation needs to be fixed so all members delivering a very important service to customers can do so at speed and compliantly with no gray area with clear guidance or a place that circumstances could be checked off with the regulator directly like we do we technical teams and our own licences . The good companies then will last and the not so good will fall off just like an open free market should.

but many things to fix yet the fact industry funds are still working together under one banner now they are open member funds is the act of collusion involves people or companies which would typically compete against one another, but who conspire to work together to gain an unfair market advantage. this should be stopped as it has created a monopoly on the market.

Why stop with insurance?? Because of a lack of advisers, let’s all do ROA docs for superannuation, managed investments, etc. until further notice?? You know on second thought, because there are less advisers, let’s drop having any written advice docs until things go back to normal.

Of course, this is all for better outcomes for clients who never really wanted professional advice anyway...

Combine this proposal to 80;20 on life risk commissions and maybe we can restore this industry to where there are sufficient NEW risk business inputs to meet claims for older clients.

Until we remunerate risk specialists for their work the Statutory Number 1 Funds in this country will be wound up. That should concern all politicians, particularly the Labor ones, as their industry fund mates can still offer insurance.

The cynic would say the FSC have expertly designed the fall/culling of the adviser force, to now set up in house advice for super/retirement, and now argue to make their new businesses super profitable, for low cost carve out ROA's. Well played to the power brokers.

The FSC should have no input to advice - they are not advice businesses and do not provide advice. They are heavily conflicted manufacturers looking to sell product.
The AFA and FPA should be lobbying hard with the regulators and govt to exclude this group from any advice discussions. They introduced LIF in 6 months but still haven't sorted out an enforceable Life Insurance code four years on.
Product information can be provided by any maunfacturer but dont pretend it is advice. Remove the the term from any communications and ensure the consumer understands they are dealing directly with an entity that does not, by design, work in their best interests. Any recommendations are only about goods they sell.

Here here! Well said.

Well done FSC. This is a step in right direction. Clients don't want SOA. Client want their questions answered in timely manner by someone who has credibility. If ROA enables client to receive answers in efficient manner, then I cannot see why it cannot be implemented.

You do realise that this not designed to help advisers, only call centre staff?

This is meant to help Client. This isn't a debate about who gets to help client.
Client will chose which channel they wish to seek advice from, depending on complexity of their needs, and their aptitude towards managing personal finance. Some client may not seek advice at all, as they are happy to they own research, and just need someone to validate what they think. No one is stopping you to set up an advice business that can offer more than what call centre can offer, and at the same time, provide clients convenience of receiving that help over the phone or via video conference.

hmmm. really?

no, it's not. financial planning is all about compliance. Did you or did you not follow the process? the outcome doesn't matter.

I want dealer groups to outdo each other above and beyond the requirements of the law (which is pitiful) and not stop until there are 0 disputes.

afca released figures for total no of disputes there were 84,500 and of that less than 1.6% were for financial planners that is equal to 1,352 pa and that is still way too many. how can we keep getting 26 complaints per week and not feel the regulatory wrath?

I want 800-page SoA's file reviews every month I want 0 complaints first before any advice is provided.

let's get it write (get it, because we have to write SoA's).

so which dealer group compliance is with me to produce a mammoth 800-page SoA, and Roa's every month?? c'mon let's do it.

down to 0 complaints.

it's true all the compliance is due to client's complaining. if there were 0 complaints against financial planners then we could boast and blame others or shift blame to others. remember, Australia is about blaming others. I want to be on the side who blames others and humiliates and shames them in the process oh what fun. don't you other fp's want to do the same.

I have had 0 complaints in 21 years. I make sure I do not take on risky clients or anyone who even has an inkling that they might complain (my process is very difficult I make the engagement process so long that any potential complainee leaves partway through because they cannot cope with the tests I put them through). who wants a nightmare to deal with. no thanks. I'd rather pass that client to one of the big instos to deal with and manage. thanks very much.

look at the bloody mortgage brokers they got to keep their upfront and trail. and guess how many complaints they got in total out of the population of 20,000 plus mortgage brokers a paltry 7 compared to our 1,352. no wonder they snicker and laugh at us and call the advice industry "the disaster we do not want to be"

does anyone see the correlation between the number of complaints and compliance? please do yourselves a favour make it hard for people to become your clients.

0 complaints = path to self-regulation

thank you

The most obvious way to reduce the spiralling compliance costs is to have a level playing field for opt in arrangements. Either you totally remove "Opt Ins" for ongoing service fees, to "Opt Out" in the annual Fee Disclosure Statement, OR you ban intrafund bonus payments being paid to approx 1000 advisers, who are having a field day not having to waste time chasing up Opt Ins, and are being paid without any informed consent being provided by those fund members. If you eliminate Opt Ins, it would free up about 2 months a year to provide reasonable scaled Statements of Advice.

All the FSC is doing is paving the way for AMP & co to put in place their own intrafund deals, screwing over independent advisers with a new inhouse vertically integrated sales force (who will need scaled RoAs). Blindingly obvious to those advisers who have been around for more than a decade.

Firstly – having the FSC provide ‘input’ into how advice is delivered is like having Pfizer dictate how doctor’s should write prescriptions. Butt out and stick to dirtying whichever pool you’ve decided to ruin this week.

Next - regardless of the document used to deliver the advice, the Code of Ethics still applies. And the work involved in complying with those requirements have ratcheted up the cost of providing advice to the point where an RoA would probably only be marginally cheaper than an SoA.

Though I’m sure our friends at the FSC would also like to see a carve out for their very special staff from the Code too?

Finally – once we’re all degree qualified, exam-worthy and operating under the Code, there should no longer be any requirement to squeeze our advice into these template documents lawyers have dreamed up.

A detailed conversation, followed up with a clear and concise email/file note, should suffice. More detailed engagements mean more detailed documentation.

Y’know, like every other profession.

We still live and die by the advice itself, but having to capture it in such deeply flawed documentation is an infantile restriction on professional advisers acting in the client's best interests.

Excellent points

I agree - excellent points.

When is the FSC going to simply admit that they conned the government into the LIF and its backfired on them? Fix commissions and you will fix a big part of the problem as to why your new business has dried up.

On the right track with this, but how do you issue a ROA without doing a SOA first (for new clients)?. What many find is that ROA's are almost the same as a SOA anyway. ROA's also need you to consider if there has been any significant change in the clients circumstances, which leads you to do the same fact find as a for a SOA. The compliance boffins have made the use of ROA's inefficient, that you might as well do a SOA.

Lastly, I can't help but think the FSC are looking to bring back the call centre flogging of insurance policies. Hopefully they aren't.

Spot on gt, dont these people realise to do a roa is still a lot of work? They speak as if its relief, well its not! Its not a magic bullet this roa thing. What would help is relief from the coe , easier scoping of advice, rules we can all abide by instead of dealership interpretations and general advice carve outs , and to allow clients to pay a ongoing manement fee to actually manage thier investments, not to provide reams of paperwork annually including this stupid no change roa crap.

I think you might have missed the point. The recent reprieve we were given which allowed RoA's to be provided in relation to early release from super didn't require you to have already done an SoA, which means you didn't need to assess whether they've had a significant change in circumstances. The RoA would replace the SoA as the initial advice document for single issue and straightforward advice.

The big difference being that you don't need to have prepared the RoA in advice, you give the advice verbally and then do the RoA afterwards. There's a few people commenting on here about RoA's being as much work as an SoA, if that's the case you're doing it wrong. An RoA can be as simple as a file note.

Not sure what dealership you are with Brett however a file note would never suffice for a roa in my dealership. For example comparisons still need to be done if recommending a product, best interests still need to be met. A roa is easier than a full soa granted, however there are still a lot of hoops to jump through if you want to be within the code of ethics. Remember its not the roa relief, or even the roa, its the advice given in them that will be pulled apart by afca and looked at through the coe lense. A limited roa for a new client would never pass that test.

Agree all licensees are different and see the requirements differently. Any proposal to remove the need for an SOA is a complex one and one that would require amendments to the Corps Act. I'm not saying that we could simply remove the need for an SOA immediately and roll on with RoA's, but if we could get to that point in the future then we'd have an industry that could provide cost effective advice to everyone, rather than only providing full advice to the wealthy.

Going back to your point about the work involved in RoA's - when they were brought in the intention was that a file note would be sufficient because you're providing additional or further advice to comprehensive advice that's been fully outlined in an SoA i.e. you've already given them all the legal garbage, the education material about the various risk, disadvantages, advantages, alternative strategies, so you don't need to repeat any of that in the RoA.

Directly from our licensee in relation to covid ROA's, "For new clients, or those that have not previously received an SOA under our AFSL, an SOA will be needed." We also need to document the advice in a ROA, and can't use a file note. It's probably a perfect example of how licensees go above and beyond to protect themselves, in the compliance environment created by ASIC & FASEA.

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